Class 5: Internal Organizational Environment and Resource-Based View

MG106 Strategic Management

José Ignacio González Rojas
j.i.gonzalez-rojas@lse.ac.uk

London School of Economics and Political Science

June 30, 2025

Today’s Investigation 🔍

Four Questions to Explore

1️⃣ Root causes: What created these problems? How serious?

2️⃣ Pressure sources: SPH system or management behavior?

3️⃣ Memo effectiveness: Does Exhibit 3 clarify sell/non-sell time?

4️⃣ System redesign: How would you fix compensation/policies?

Framework: Resource-Based View + Internal Organizational Environment

Task: 15 minutes to discuss ALL questions 🕐

Go! Analyze the System 🚀

Start with Nordstrom’s business model

Understanding Nordstrom’s Model 🏬

Mapping WHO-WHAT-HOW

The Nordstrom Business Model

WHO 👥

  • Affluent customers
  • Value relationships
  • Seek expertise
  • Time-sensitive

WHAT 🎁

  • Personal service
  • Fashion expertise
  • “Heroics”
  • Convenience

HOW 🔧

  • College-educated staff
  • High compensation
  • Entrepreneurial culture
  • SPH system

Key Resource: Service-oriented employees earning 2x industry average

But how do you manage this human capital?

Question 1: Root Causes 🔍

The SPH System Design

A Diagnostic Control System

What SPH Measures:

  • Sales ÷ Hours = Productivity
  • Individual performance
  • Commission eligibility (>$140/hr)
  • Relative rankings

The Trade-offs (page 6):

Choice Result Impact
Report less hours Higher SPH ✅ Better shifts 🌟
Report all hours Lower SPH ❌ Risk termination 🚫

Rational response: Work off the clock

The Hidden Work Problem

Two Essential Activities, One Measurement

Measured Activities 📊

  • Floor selling
  • Direct transactions
  • Immediate revenue
  • Visible to system

Unmeasured Activities 🤝

  • Home deliveries
  • Thank-you notes
  • Relationship building
  • Stock preparation

The Contradiction: Both create value, only one counts

Result: 8-10 hours/week unpaid (Exhibit 4)

Crisis Severity Assessment

From Internal Issue to External Threat

Escalation Path:

  • Local union complaints
  • State investigation
  • Management response
  • Employee lawsuits
  • Media coverage

Damage Scale:

  • $2M+ in claims
  • Wage violations ruling
  • $15M reserve
  • 50,000 plaintiffs
  • National exposure

Resource at Risk: 90-year reputation

Intangible assets can vanish overnight

Question 2: System or People? 💪

Analyzing Pressure Sources

The Internal Organizational Environment

Management’s Role

Beyond System Design

Implicit Pressures:

  • Public rankings posted
  • Schedule assignments
  • Promotion decisions
  • “Team player” culture

Explicit Actions (per case):

  • Managers erase hours
  • Force unpaid meetings
  • Punish full reporting
  • Create fear climate

System enables, management amplifies

Question 3: The Memo’s Failure 📄

Exhibit 3 Analysis

Why Clarification Failed

Memo’s categories
Activity Classification Employee Reality
Deliveries Non-sell “Part of service”
Thank-you notes Do at home anyway
Stock work Expected off-clock
Meetings Still hurts SPH

Every activity connects to relationships - can’t separate service from selling

Question 4: Redesigning the System 🛠️

Beyond SPH: Alternative Metrics

Aligning Measurement with Strategy

Current State:

  • Sales per hour only
  • Individual focus
  • Short-term view

Add Metrics For:

  • Customer retention
  • Transaction value
  • Team performance
  • Service quality

Match measurements to strategic objectives

Organizational Alignment

Making the System Work

Keep:

  • Entrepreneurial spirit
  • Performance differentiation
  • Customer focus
  • High standards

Change:

  • Broaden metrics
  • Team incentives
  • Clear boundaries
  • Ethical guidelines

Key: Preserve culture while fixing exploitation

Evolution, not revolution

Strategic Implications 🎯

Resource-Based View Analysis

Nordstrom’s Competitive Advantages

Tangible Resources:

  • 59 store locations
  • Distribution systems
  • Financial capital
  • Physical inventory

Intangible Resources:

  • Brand reputation (90 years)
  • Customer relationships
  • Service culture
  • Employee expertise

Which create sustainable advantage?

Internal Organization Lessons

System Alignment is Critical

The Nordstrom Case Shows:

Good strategy + Wrong organization = Poor outcomes

All elements must reinforce each other

Key Takeaways

For Strategic Management

Measurement

  • Shapes behavior
  • Must be complete
  • Creates distortions

Culture

  • Competitive advantage
  • Decades to build
  • Moments to destroy

Alignment

  • All elements matter
  • Must reinforce
  • System coherence

Excellence requires coherent systems

For Tomorrow 📚

Apple 2010

Read: The Apple case

Questions to consider:

  1. What have been Apple’s competitive advantages?
  2. How favorable is the PC industry for Apple?
  3. How sustainable is Apple’s position in PCs, smartphones, iPads?

Focus on: How resources and capabilities create advantage 🎯